Thought Leadership

Evolution to First Price Auctions

September 5, 2019

By Martin Hill

It’s no secret the adtech industry has evolved from second price auctions to first price auctions. But why did that standard develop? Rubicon Project’s Martin Hill explains how this new structure ensures that demand is reflected correctly.

VIDEO TRANSCRIPT

How has the industry evolved to first-price auctions?

I think it’s probably well documented that the second price auction is the right type of auction to kind of maximize, I guess, revenue. However it needs to be holistic, and all demand needs to be represented within the auction, to kind of have this holistic view. I think, looking at our ecosystem and how it works, that isn’t the case.

I think there’s lots of things going on in DSPs where there’s lots of campaigns inside, and there’s already a kind of auction happening to choose which of those campaigns to bid into another auction, and then we have this ecosystem where we have multiple SSPs or exchanges that are all soliciting demand, and they’re not even the final auction house. So this kind of multi-auction ecosystem means that to have demand represented fairly in that final auction, we kind of needed to move towards the first price, so that the active bid price for each individual bidder is correctly reflected in where the final decision is being made.